There is guarded optimism that support measures for some of the nearly three million excluded, will be announced in the budget of March 3rd. At least two suggested schemes have now been put to the Treasury for consideration and have strong support from a cross-party group of MPs.
Here we break down the new proposed support measures and what that could mean for you if you fit in to one of four key groups.
Tuesday saw parliamentary questions on the implementation of the Directors Income Support Scheme (DISS) and the Targeted Income Grant Scheme( TIGS) proposals, put to the Chancellor and the Financial Secretary to the Treasury.
Jesse Norman responded, saying, “We have spent considerable time engaging with groups that have brought forward potential ways of addressing some of the gaps in support that may exist. We have had meetings in December and evaluated suggestions all the way through last year, including a concrete suggestion in relation to the directors income support scheme, so we are heavily leaning into this issue.”
What is the Targeted Income Grant Scheme (TIGS)
It has the support of 262 MPs spread across various political parties, with the proposals setting out eligible recipients will get a one-off targeted grant worth between £3,500 and £7,500.
Who could be supported by the TIG Scheme?
Group 1: Newly Self-Employed (NSE)
3% of self-employed people (ONS data covers January to December 2019 so these estimates will not include people who have become self-employed since the start of 2020 and might under-report the extent of newly self-employed people) have been self-employed only since after the end of the tax year ending 2019, meaning that they are not eligible for the Self-employment Income Support Scheme (SEISS). The newly self-employed have missed out on Government support due to entering self-employment between the 5th April 2019 and the launch of the scheme in March 2020.
On 31 January 2021, those who were newly self-employed for the tax year 2019 - 2020, will have submitted their first self-assessment. Although this will only be for one year’s trading it does give HMRC some valid data in order to provide some support without there being an inherent risk of fraud. It is also not too labour intensive because the evidence is in the self-assessment which HMRC already have in their systems.
Group 2: PAYE Freelancers (PF)
A PAYE Freelancer is someone who identifies as self-employed for tax but is paid on payroll for some or all of their work. It may be that they also carry out self-employed work separately. So, they are a freelancer when self-employed but PAYE when not and, crucially, they are not an employee. It is most likely that they are a limb b worker but that is irrelevant for these purposes. The problem is that this cohort cannot claim SEISS because over 50% of their income comes from the PAYE work. This is further complicated by the fact that because they are not employees, they are not entitled to the CJRS. So, this has left them falling between two schemes.
Group 3: Ltd Company Directors (LCD)
The Limited Company Directors (LCD) are a group that have been largely excluded from any meaningful help (except in Northern Ireland which announced their new Limited Company Director’s Support Scheme on 14th January 2021). It is acknowledged that the LCD can claim under the Coronavirus Job Retention Scheme (CJRS) but, they can only claim for 80% of the basic salary which is on average £585 per month. In addition to this though, they cannot work. The SEISS scheme, however, does allow the self-employed to continue working.
Group 4: Taxpayers excluded by the 50/50 Rule (50/50)
In order to be eligible for SEISS one of the conditions is that your trading profits from self-employment must be equal to or more than your non-trading income. Trading profits must also be £50,000 or less.
This condition means over 1 million UK taxpayers have been unable to claim SEISS.
What is the value of TIGS grants?
These one-off targeted grants from £3,500 to £7,500 would be easy to administer, fraud-resistant and offer long-term economic benefits. These grant options are based on precedent. The £3,500 grant option matches the Northern Ireland scheme for the newly self-employed; the £7,500 for PAYE freelancers, Ltd Company Directors and those excluded by the 50/50 rule is in line with the grant cap amount on SEISS.
How many people would be covered?
If implemented by the government, this cross-party plan could support up to 2.9 million UK taxpayers that have so far been excluded from meaningful COVID-19 financial support.
The total amount of self-employed people in the UK is approximately 5 million, and 3.4 million of those have claimed SEISS.
So there are 1.6 million self-employed people currently excluded from SEISS. There are, additionally, other excluded groups that are not technically self-employed in the way HMRC would define them that add to the over 3 million estimated total.
The 2.9 million figure covers four cohorts of people who have been excluded from support to date. It does not cover those denied furlough, new starters denied furlough or maternity/paternity exclusions from SEISS and CJRS.
The table below summarises the proposed TIGS grant values, alongside the more comprehensive policy options the All Party Parliamentary Group has recommended to the government.
Excluded Group Suggested Policy
Newly Self-Employed 4th SEISS grant or one off £3,500
PAYE Freelancers 4th SEISS grant or one off £7,500
Ltd Company Director DISS( see below) or one-off grant of £7,500
50/50 Trading and Non- 4th SEISS grant or one-off £7,500
Trading Income
What is DISS ( the Directors Income Support Scheme)?
Separately under consideration though included within TIGS.
It’s a package tailored to the needs of directors of limited companies, who do not qualify for the Self-Employment Income Support Scheme (SEISS) and often find themselves unable to claim enough through the Coronavirus Job Support Scheme (CJRS).
DISS is the brainchild of tax and legal expert Rebecca Seeley Harris, who formerly worked at the Office of Tax Simplification, the campaign group Forgotten Ltd, the Federation of Small Businesses (FSB) and accounting body, ACCA, who together wrote to the Treasury calling for its immediate introduction and had been under consideration since November 23
Similar to SEISS
The assumption is that DISS will be run on the same parameters as the self-employed income support scheme (SEISS). The goals have been to design a scheme that:
Creates parity with the SEISS
Is not open to fraud or abuse by non-trading companies
Can use existing information and tools that HMRC already have and therefore will be simple to administer and setup.
The scheme would be based on trading profits as evidenced by CT600 company corporation tax returns.
To make the scheme equivalent of the trading profits of a self-employed person using the SEISS, on which the DISS is modelled, the director's remuneration would be added back into the reported trading profits on the CT600. Both figures are available from records kept by HMRC
One company, one directorship
The director would only be able to claim for one directorship in the entity which they have the greatest income, and that income must make up over 50% of any income from other sources. The director must declare that they intend to continue to trade and are either:
Impacted by reduced demand due to coronavirus, but are currently actively trading
Temporarily unable to trade due to coronavirus, but were previously trading
What is the qualifying criteria for the DISS?.
To prevent abuse of the scheme, directors of multiple companies would only be allowed to claim for one business, in which they have the highest income. This income needs to also amount to more than half of all income earned by that director. However, in theory, this shouldn’t affect most contractors, most of whom are likely to earn most of their money via their personal service company.
While the DISS proposal does not include a limit on earnings, it seems that the government would want to bring it in line with the SEISS, which is capped at £50,000.
Assuming the DISS is given the green light, contractors who apply for the scheme must have experienced a reduced demand for their services because of the pandemic but are still actively trading. Alternatively, if you have been forced to stop working due to the Coronavirus but were previously open, you would also be deemed eligible.
Who would DISS be open to?
DISS would be open to individuals who were an executive director and a Person of Significant Control (PSCs). They could be a sole director/shareholder, one of several working directors or PSCs in a micro-entity (although DISS would be limited to companies with not more than four directors) or an actively trading small company. The company would need to be actively trading and not an investment or property company.
How would it be paid?
The grant would be paid directly into your business bank account and could be withdrawn as a dividend or salary, or even kept in the business to assist with cash flow. It’s important to note that like the SEISS, any money claimed via the DISS would be taxable.
It would count towards your company turnover, therefore be chargeable to corporation tax and if withdrawn personally you would need to pay Income Tax on it, at the right time.
As with other proposals for company director support he scheme would require a manual check of some kind – in this case, it would be verified either by an accountant or self-certified by the director of the company, which is protected from fraud by the director’s duties. Again, like SEISS, individuals would have to declare upon claiming that their business had seen reduced demand or been unable to trade as a result of coronavirus.
Any verification of the company’s profits can be self-certified because unlike the self-employed, the director of a limited company has certain duties in law. If a director makes a false or misleading statement, then this can have very serious consequences.
Example 1
Sam works through limited company providing sales and marketing consultancy. They are the sole worker in the company and his profits are less than £50,000 a year.
In this scenario there is one company director with a majority shareholding in the company that is owned and managed by them - they are a working director in an actively trading company. This company would be one of the 946,000 with no employees. This company can either be registered or not for VAT or PAYE. The DISS grant would be paid into the company and could be distributed either as taxable income or it could be kept in the company for cashflow purposes.
It is estimated that there would be 946,000 working directors eligible for the DISS grant. According to take-up levels for eligible companies that are based on SEISS levels, 75% would claim the average £2,900 - this would cost an estimated £2 billion.
Example 2
Hilary and Jas are working directors running a small manufacturing company and employ eight staff. Last year the company made a profit of £45,000.
Here, there are one or more working company directors in the actively trading company where they are each a person with significant control (PSC). A PSC in this context is someone who has more than 25% shares in the company and more than 25% voting rights and the right to appoint or remove the majority of the Board.
This means that DISS would be limited to companies with not more than four directors. This company may be one of the 1.157 million micro-entities whose turnover is no more than £632,000 or with up to £316,000 on the balance sheet, and ten or fewer employees.
With the entity trading profits capped at the level of SEISS, it is estimated that with eligible profits, directorship and PSC, eligibility would be at 70%. With an estimate of four million directors at 70% eligibility (2.8 million) and 75% take-up levels (2.1 million), and an average claim of £2,900, the cost would be around £6 billion.
Issues with DISS
DISS would appear to mirror one of the major flaws with SEISS, the £50,000 profit cap It has the benefit of directly addressing some of HMRC’s practical concerns, such as the risk of fraud, that the government has cited as justifications for not providing support.
The initial cost of the DISS is expected to be in the region of £2bn to £6bn, in comparison to the £55bn furlough scheme, which was recently extended until the end of April, which strengthens the case for tailored support for millions of limited company directors in the UK.